The European Central Bank (ECB) announces a new monetary policy. This should be the last signal for savers to flee the euro. Because the monetary system, to which Bitcoin is the alternative, is increasingly exposing itself.
Christine Lagarde is currently causing concern with hints about future monetary policy. In a speech in Frankfurt at the end of September, Lagarde had expressed some thoughts on changing the course of the ECB’s monetary policy strategy.
Price stability endangers price stability
Lagarde stated in her speech that the strategy of the ECB, as it was formulated in 2003, is meanwhile being challenged from several sides.
The primary goal of the ECB is to maintain price stability in the eurozone. But what that means in concrete terms depends on how price stability is defined. With the formulation coined in 2003, it is regarded as inflation of “less than, but close to two percent”. The intent of this formulation was to avoid inflation, but at the same time to maintain a sufficient buffer above zero to keep the ECB’s monetary policy instruments sharp.
However, according to Lagarde, this is no longer appropriate today. In the eurozone, annual inflation fell from an average of 2.3 percent between 1999 and 2008 to 1.2 percent in the past decade. The problem is no longer inflation – but its lack. It is becoming increasingly important to ensure a sufficient distance from the zero mark in order to “strengthen conventional monetary policy again.”
In addition, Lagarde would like to think about the time horizon over which price stability can be achieved. In an innocent-academic-sounding formulation, she then serves the bomb. They are currently discussing the inclusion of an element looking into the past “in the horizon of politics in order to react to the circumstances of low inflation. “Central banks could commit to” adjusting for inflation if they have remained below their inflation targets for some time. ”
As recently as September, the US Central Bank FED had exactly this policy change announced, and at the U.S Congress are already discussing a $2 trillion new rescue package. If inflation for several years was less than two percent, it should be for years to come above this level. Such a strategy, says Lagarde, could “strengthen the capacity of monetary policy to strengthen the economy”, referring to a paper by the Bank for International Settlements (BiZ) that examines the influence of an “average inflation target” on macroeconomic stability and the social prosperity ”.
A currency devaluation with announcement
Lagarde’s message is pretty clear: the ECB currently sees the greatest threat to price stability in – at stable prices. The ECB has been too good at preventing inflation – if its measurement of price increases is to be believed – so the lack of inflation has become a problem for the real economy. The ECB should therefore change its definition of price stability so that its official goal is to drive inflation – that is, to destabilize money.
Nobody can say that the ECB has obscured this goal; everyone should know that the central bank is officially planning to make the money made today worth less in a year.
The consequences have long been known and should no longer surprise anyone: the more relaxed the central bank’s monetary policy, the more assets such as stocks, real estate, gold and cryptocurrencies rise. Already now, with – allegedly – non-existent inflation, assets are skyrocketing and widening the gap between the wealthy and the non-wealthy. This process will only get worse if the ECB really tries hard to beat inflation to three percent. Some get free money, others don’t.
Perhaps the central bank actually wants policies for prosperity and employment – even if that is not its mandate. But it should be clear to them that their monetary policy threatens to tear apart social cohesion and lead us back into a wealth distribution that was known from the premodern.
As an individual, you can’t do much about it. You can write outraged articles, and you can campaign for Bitcoin or another cryptocurrency with an algorithmically defined amount of money to replace fiat money.
Until then, everyone should do what probably all employees of the ECB do: Make sure that their personal wealth is not dependent on the euro in the future. Because the medium in which you save – money or asset – will decide which side you are on in the future. As bitter as it may be, that’s the game of fiat money.